White goods sector wakes up to Make in India! ACs, fridges drive domestic manufacturing boost

The September hike in import duties on white goods like air-conditioners, refrigerators and washing machines as well as on compressors has given a big boost to domestic manufacturing in the white goods sector. Investments topping Rs 6,500 crore have already been lined up for the next two years in this sector, and there's more in the pipeline, The Economic Times reported.

Consider the Rs 30,000-crore appliances industry, where only entry- to mid-segment products have typically been manufactured locally. Where premium models and critical components such as heat exchange coils and compressors are concerned, the segment has so far relied on imports. For example, over 50% of air conditioner components are currently imported.

"After the recent import duty hike by the government, it is no more a question whether to locally produce or import and sell," Gunjan Srivastava, managing director of BSH Household Appliances, which sells Bosch and Siemens machines in India, told the daily. "We need to invest in local manufacturing and create a Make in India base, otherwise it will be difficult."

So BSH is planning to invest 100 million euros (about Rs 800 crore) for setting up a refrigerator factory near Chennai after having recently started making washing machines.

The government, effective September 27, had doubled duties on import of 19 items, including air conditioners, household refrigerators and washing machines (less than 10 kg), to 20 per cent in an attempt to contain the widening current account deficit and check the rupee fall. Import duties on compressors for air conditioners and refrigerators were also hiked from 7.5 per cent to 10 per cent. This had led to a 10 per cent increase in the price of imported appliances.

No wonder foreign and domestic companies are now looking to set up manufacturing infrastructure in India and invest in backward integration. The buzz is that Shanghai Hitachi Electrical Appliance Co., a joint venture between Hitachi Japan and Shanghai Highly Group of China, is expanding its compressor unit in Gujarat.

Then, another Chinese player, Guangdong Meizhi Compressor Co, a Midea Group company that boasts a 34 per cent global market share, is setting up a new Rs 1,350-crore manufacturing facility in Maharashtra. This facility will reportedly be its first outside China, of which almost half will be for compressors.

Not to be outdone, China's top appliance maker Haier has finalised plans to invest Rs 3,000 crore in its new plant in Greater Noida that will reportedly manufacture components and premium models. The company signed an MoU with the Uttar Pradesh government for this project in September, just 10 months after it shelled out Rs 600 crore to upgrade its Pune plant.

Mike Chen, Country Manager - TCL India, told the daily that they plan to start manufacturing appliances and its components from next year at their upcoming Rs 2,000 crore plant in Tirupati, where it will also produce televisions.

The booming consumer durables segment, estimated to have reached Rs 1 lakh crore ($15.5 billion) last year, is also seeing the entry of new players. In September, Tata group firm Voltas and Arcelik, a part of Koc Holding which is the largest industrial conglomerate in Turkey, announced a 50:50 joint venture, Voltbek Home Appliances Pvt Ltd.

Voltas MD Pradeep Bakshi told the daily that Arcelik is investing over Rs 250 crore to start manufacturing in Gujarat, which will also include backward integration, and the investment will go up in phases.

Significantly, it's not just the import duty angle that is making the white goods sector wake up to the potential of Make in India. "Brands importing even from countries with which India has signed free trade agreements (FTAs) have realised that local manufacturing may be cheaper due to lower labour costs and not having to pay for high freight costs from overseas," Kamal Nandi, Godrej Appliances business head and president of the Consumer Electronics and Appliances Manufacturers Association (CEAMA) lobby group, told the daily.

Given that the industry feels that a further customs duty hike could be on the cards, as in the case of televisions and smartphones, India's long-ailing manufacturing sector is clearly headed for a revival, giving a fillip to employment generation in the bargain.

Edited by Sushmita Choudhury Agarwal with PTI inputs